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Pitney Bowes Announces First Quarter 2016 Financial ResultsPitney Bowes Inc. (NYSE: PBI), a global technology company that provides products and solutions that power commerce, today reported financial results for the first quarter 2016. Quarterly Financial Results:
"We continued to make progress during the first quarter as performance improved in several of our businesses and we largely completed the next major milestones in our transformation to deliver greater long-term value," said Marc B. Lautenbach, President and CEO, Pitney Bowes. "During the quarter, we turned in a strong performance in new equipment sales in North America Mailing, a leading indicator for our Mailing business. Our Presort Services business also performed well, and Global Ecommerce continued to have strong revenue growth. However, we did not execute in our Software Solutions business, which also experienced weaker technology market conditions. We have realigned our Software management team and expect improvement throughout the year. "In the last 120 days, we launched the first major television advertising campaign in twenty years, deployed our new ERP and business process platform in Canada and the U.S., and moved to a dealer network in several markets. Last week, we announced the Pitney Bowes Commerce Cloud, including five SaaS-based solutions that utilize our physical and digital capabilities, mobile, global and ecommerce technologies with all of the end-to-end requirements that drive commerce. While these investments have impacted our first quarter results, we will begin to realize benefits associated with the implementation of our new platform beginning in the second half of the year. Going forward, I am confident in our ability to deliver on our long-term strategic plans and we will continue to unlock value for our shareholders." First Quarter 2016 Results Revenue totaled $845 million for the quarter. On a comparative basis, revenue declined 3 percent versus the prior year when adjusted for the impact of currency and the impact from the exit of direct operations (market exits) in Mexico, South Africa and five markets in Asia. Revenue declined 4 percent on a constant currency basis and 5 percent on a reported basis. Digital Commerce Solutions revenue grew 11 percent on a constant currency basis and 9 percent on a reported basis. Revenue on a constant currency basis benefited from growth in Global Ecommerce, while revenue declined in Software Solutions. Enterprise Business Solutions revenue declined 1 percent compared to the prior year when adjusted for the impact of currency and market exits. Revenue declined 2 percent on a constant currency basis and 3 percent on a reported basis. Revenue benefited from continued growth in Presort Services, which was offset by a decline in Production Mail. Small and Medium Business (SMB) Solutions revenue declined 3 percent compared to the prior year when adjusted for the impact of currency and market exits. Revenue declined 4 percent on a constant currency basis and 5 percent on a reported basis. SMB equipment sales revenue grew globally while recurring revenues declined. Adjusted earnings per diluted share were $0.34. Earnings per diluted share on a Generally Accepted Accounting Principles (GAAP) basis were $0.30, which included $0.02 per share for restructuring charges and $0.01 per share for disposition costs related to the market exits. Earnings per share comparisons this quarter were adversely impacted by $0.03 per share for incremental advertising expenses; $0.01 per share for higher ERP related expenses and $0.02 per share for the absence of Imagitas earnings compared to last year. The Company's earnings per share results for the quarter are summarized in the table below:
* The sum of the earnings per share may not equal the totals above due to rounding Free Cash Flow Results Free cash flow during the quarter was $60 million and $58 million on a GAAP operating cash basis. In comparison to the prior year, free cash flow declined due to lower net income and a slower decline in finance receivables. Cash flow comparisons were also impacted by the timing of payments resulting from the launch of the new ERP program in the U.S. During the quarter, the Company used cash for: $36 million in dividends to its common shareholders; $128 million for share repurchases; $22 million for restructuring payments and $37 million for a contribution to the UK pension fund. Business Segment Reporting The Company's business segment reporting reflects the clients served in each market and the way it manages these segments for growth and profitability. The primary reporting segment groups are the SMB Solutions group; the Enterprise Business Solutions group; and the Digital Commerce Solutions group. The SMB Solutions group offers mailing equipment, financing, services and supplies for small and medium businesses to efficiently create mail and evidence postage. This group includes the North America Mailing and International Mailing segments. North America Mailing includes the operations of U.S. and Canada Mailing. International Mailing includes all other SMB operations around the world. The Enterprise Business Solutions group includes the global Production Mail and Presort Services segments. Production Mail provides mailing and printing equipment and services for large enterprise clients to process mail. Presort Services provides sortation services to qualify large mail volumes for postal worksharing discounts. The Digital Commerce Solutions group includes the Software Solutions and Global Ecommerce segments. Software Solutions provide customer engagement, customer information and location intelligence software. Global Ecommerce facilitates global cross-border ecommerce transactions and shipping solutions for businesses of all sizes. The Other segment is comprised of the Imagitas marketing services business, which was sold on May 29, 2015.
* Excluding the impacts of currency and the divested revenues resulting from the exit of direct operations in Mexico, South Africa and five markets in Asia.
* Excluding the impacts of currency and the divested revenues resulting from the exit of direct operations in Mexico, South Africa and five markets in Asia. North America Mailing The revenue rate of decline for the quarter was consistent with prior quarters. Equipment sales and supplies increased in the mid-single digit range compared to the prior year on a constant currency basis, which was the best year-over-year performance for equipment sales in several years. Recurring revenue streams declined at a mid-single digit rate. The Company continues to focus on driving increased sales effectiveness in the segment's sales channels, which was evident in the quarter. EBIT margin was lower as a result of the decline in high margin recurring revenue streams. International Mailing Excluding the adverse effect from currency and the recent market exits, the revenue decline for the segment continued to moderate. The Company's strategies of realigning its geographic footprint and go-to-market have been completed and the productivity benefits are being reflected in the results. Revenue on a constant currency basis benefited from equipment sales growth in France, Germany and Japan. The decline in recurring revenue streams was consistent with prior quarters. EBIT margin improved versus the prior year primarily as a result of lower costs associated with the change in go-to-market.
* Excluding the impacts of currency and the divested revenues resulting from the exit of direct operations in Mexico, South Africa and five markets in Asia. Production Mail Excluding the adverse effect from currency and the recent market exits, revenue declined 8 percentage points. Equipment sales declined due to fewer inserting equipment installations in part due to the timing of closing some large deals. Support services and supplies revenue declined, in part, as a result of some in-house mailers shifting their mail processing to third party outsourcers and the recent market exits. EBIT margin declined versus the prior year as a result of the lower revenue, especially the higher-margin inserting equipment sales revenue. Presort Services Revenue benefited from the higher volume of First Class mail processed as well as expansion into the St. Louis market. EBIT margin was relatively flat to the prior year as benefits from on-going operational productivity initiatives offset increased mail processing costs.
Software Solutions Revenue declined due to fewer large licensing deals and lower data-related revenue versus the prior year. The Company is expanding its channel reach and focus on several high-potential industries with targeted solutions, which have longer sales cycles. Management continues to focus on improving sales efficiency and expanding the indirect channel to improve the pipeline of deals. EBIT margin declined as a result of the lower licensing revenue, which has a high margin, and increased selling and marketing costs. Global Ecommerce Results included another full quarter of revenue from Borderfree retail clients and strong growth in the UK marketplace. The launch of new retail storefronts also added to revenue in the quarter. Outbound U.S. package shipments improved during the course of the quarter as pressure from the strong U.S. dollar began to subside. EBIT margin declined versus the prior year due to the amortization of acquisition-related intangible costs and investments in the business, which more than offset the early stages of synergy savings. The Company remains on-track to achieve its synergy run-rate objective by the end of the year.
The Other segment is comprised of the Imagitas marketing services business, which was sold in May 2015. 2016 Guidance This guidance discusses future results, which are inherently subject to unforeseen risks and developments. As such, discussions about the business outlook should be read in the context of an uncertain future, as well as the risk factors identified in the safe harbor language at the end of this release and as more fully outlined in the Company's 2015 Form 10-K Annual Report and other reports filed with the Securities and Exchange Commission. The Company is reaffirming its annual revenue growth, earnings per share and free cash flow guidance. The Company's guidance is based on an assumption that the global economy and foreign exchange markets in 2016 will not change significantly. This guidance excludes any unusual items that may occur or additional portfolio or restructuring actions, not specifically identified, as the Company implements plans to further streamline its operations and reduce costs. The Company still expects in 2016:
The Company is providing further detail on the timing of advertising and ERP expenses among the quarters. The Company expects:
The Company still expects:
Conference Call and Webcast Management of Pitney Bowes will discuss the Company's results in a broadcast over the Internet today at 8:00 a.m. ET. Instructions for listening to the earnings results via the Web are available on the Investor Relations page of the Company's web site at www.pb.com. About Pitney Bowes Pitney Bowes (NYSE: PBI) is a global technology company offering innovative products and solutions that enable commerce in the areas of customer information management, location intelligence, customer engagement, shipping and mailing, and global ecommerce. More than 1.5 million clients in approximately 100 countries around the world rely on products, solutions and services from Pitney Bowes. For additional information, visit Pitney Bowes at www.pitneybowes.com. The Company's financial results are reported in accordance with generally accepted accounting principles (GAAP). The Company uses measures such as adjusted earnings before interest and taxes (EBIT), adjusted earnings per share, adjusted income from continuing operations and free cash flow to exclude the impact of special items like restructuring charges, tax adjustments, and goodwill and asset write-downs, because, while these are actual Company expenses, they can mask underlying trends associated with its business. Such items are often inconsistent in amount and frequency and as such, the adjustments allow an investor greater insight into the current underlying operating trends of the business. The use of free cash flow provides investors insight into the amount of cash that management could have available for other discretionary uses. It adjusts GAAP cash from operations for capital expenditures, as well as special items like cash used for restructuring charges, unusual tax settlements or payments and contributions to its pension funds. Management uses segment EBIT to measure profitability and performance at the segment level. Segment EBIT is determined by deducting from revenue the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses not allocated to a particular business segment, restructuring charges and goodwill and asset impairments, which are recognized on a consolidated basis. In addition, revenue growth is presented on a constant currency basis to exclude the impact of changes in foreign currency exchange rates since the prior period under comparison. Constant currency measures are intended to help investors better understand the underlying operational performance of the business excluding the impacts of shifts in currency exchange rates over the period. Pitney Bowes has provided a quantitative reconciliation to GAAP in supplemental schedules. This information may also be found at the Company's web site www.pb.com/investorrelations. This document contains "forward-looking statements" about the Company's expected or potential future business and financial performance. Forward-looking statements include, but are not limited to, statements about its future revenue and earnings guidance and other statements about future events or conditions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to: mail volumes; the uncertain economic environment; timely development, market acceptance and regulatory approvals, if needed, of new products; fluctuations in customer demand; changes in postal regulations; interrupted use of key information systems; the ability to protect the Company's information technology systems against service interruptions, misappropriation of data, or breaches of security resulting from cyber-attacks or other events; management of outsourcing arrangements; the implementation of a new enterprise resource planning system; changes in business portfolio; the success of our investment in rebranding the Company; the risk of losing some of the Company's larger clients in the Global Ecommerce segment; integrating newly acquired businesses, including operations and product and service offerings; foreign currency exchange rates; changes in our credit ratings; management of credit risk; changes in interest rates; the financial health of national posts; increased customs and regulatory risks associated with cross-border transactions; and other factors beyond its control as more fully outlined in the Company's 2015 Form 10-K Annual Report and other reports filed with the Securities and Exchange Commission. Pitney Bowes assumes no obligation to update any forward-looking statements contained in this document as a result of new information, events or developments. Note: Consolidated statements of income; revenue and EBIT by business segment; and reconciliation of GAAP to non-GAAP measures for the three months ended March 31, 2016 and 2015, and consolidated balance sheets at March 31, 2016 and December 31, 2015 are attached.
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